Today's Trade: S&P/ASX 200 smashes past resistance at 5,400
- The S&P/ASX 200 headed higher at the open, despite losses for resources stocks
- Iron ore slipped below the $50/t level, in a grim development for top miners
- Supply problems in Nigeria, Libya, Venezuela and Canada are propping up oil
- Base metals were generally up but copper has lost ground
- The S&P/ASX200 surged higher at the start of trading; it was up 0.48% to 5,413.80 at 1144 AEST (0144 GMT).
- US stocks ended little changed, with the S&P 500 failing to surpass a key level as Brent crude erased gains after topping $50 a barrel for the first time in six months. (See: WTI July future races to key resistance level)
Iron ore prices have slipped, and excess capacity is driving fears of lower ore prices going forward, but it's not all doom and gloom for miners, with most base metals making gains. Photo: iStock
- Banks and raw-material producers, which led gains in the S&P500 Index over the past two days, dragged the benchmark lower Thursday, preventing it from moving beyond the 2,100 level.
- Investors rotated into high dividend-paying stocks as Treasury yields fell for the first time in three days. Brent, which has soared more than 80% from a January low, touched its highest level since November after data showed US inventories oil shrank more than expected last week. The Norwegian krone and Malaysia’s ringgit were among the best performers in currencies, as the dollar weakened. Zinc soared.
- US equities took a breather following their steepest two-day advance since March, with investors looking to economic reports and crude prices for clues as to whether the world can withstand higher interest rates from the Federal Reserve. Data released on Thursday provided little clarity, with US jobless claims falling for a second week, pending home sales rising the most since 2010, and orders for business equipment unexpectedly declining for a third month. The focus now shifts to Friday’s update on GDP and an appearance by Fed chair Janet Yellen. Britain’s referendum on its membership of the European Union is also looming.
- The S&P 500 Index fell less than 0.1% to close at 2,090.10 as of 4 p.m. in New York, as financial-share declines were offset by gains in telephone, utility and consumer-staple companies. Goldman Sachs Group Inc. dropped 1.3%, while Verizon Communications Inc. and Coca-Cola Co. were among the biggest gainers in the Dow Jones Industrial Average, which marked its 120th anniversary Thursday.
- The Stoxx Europe 600 Index added 0.1% in a third day of gains. Mining companies posted their biggest three-day jump in three weeks, while European banks fell, with Banco Popular Espanol SA tumbling 26% after selling new shares. Spain’s benchmark IBEX 35 Index was the biggest decliner among western- European markets, sliding 0.5%.
- The Borsa Istanbul 100 Index dropped 0.7% amid concern Deputy Prime Minister Mehmet Simsek has had his power diminished in a cabinet reshuffle as President Recep Tayyip Erdogan extends control over the government. Simsek is the last man standing in a team of officials credited for orchestrating Turkey’s rapid growth years.
- Most Asian index futures signaled further gains for Friday, with contracts on stock gauges in Australia, South Korea and Hong Kong rising at least 0.1%. Nikkei 225 Stock Average futures added 0.3% in Osaka, before slipping 0.3% on the Chicago Mercantile Exchange.
- Brent crude for July settlement decreased $0.15 to $49.59/barrel in London after earlier reaching $50.51. West Texas Intermediate oil also slipped, falling to 0.2% to $49.48/b. Bloomberg’s index of commodity returns, however, built on Wednesday’s surge, adding another 0.2% to its highest level since May 18.
- US inventories slid by 4.23 million barrels last week, exceeding an expected drop of 2 million barrels. Attacks in Nigeria have cut production to a 20-year low and Venezuela is struggling to maintain output amid power cuts. Producers in Canada are also beginning to restart oil-sands operations that were halted by wildfires.
- Zinc jumped 2.3%, the most in two weeks, as Brent breaking $50 burnished investor sentiment. Copper advanced 0.2% in a third day of gains, while nickel added 0.5%. Gold declined for a seventh day in the spot market, its longest losing streak since November. The precious metals slipped 0.4% to $1,219.80 and ounce, its lowest close since April 4.
- Oil prices supported the Norwegian krone, which rose 1% versus the greenback, and the ringgit, which advanced 0.5%. The MSCI Emerging Markets Currency Index rose 0.2%, led by currencies from commodity-producing countries. A measure of volatility in the pound versus the dollar covering the period when the result of the vote on EU membership will be known jumped to its highest level in six years. The pound weakened versus the euro and dollar on Thursday.
- Treasuries rose after investor demand at three bond auctions this week climbed to the highest level on record. Yields on the 10-year note fell four basis points, or 0.04%age point, to 1.83%. Investors took down 80% of the $88 billion in two-, five- and seven-year debt, the most ever at sales of those maturities, according to data compiled by Bloomberg. The demand left the 23 primary dealers, which are obligated to bid at auctions, with the second-lowest amount on record at Thursday’s seven-year note sale, after receiving the lowest-ever share at the two auctions earlier this week.
- The CBOE Volatility Index (VIX) traded lower near 13.8 (see VIX Bull Call Spread trade idea: https://www.tradingfloor.com/posts/vix-bull-call-spread-7651525)
- Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index +0.5%. BHP Billiton ADR -1%. Rio Tinto ADR -2%
- Spot gold failed to hold its highs for the day as selling pressure set in and the precious metal closed down 0.4% to $1,220. A US rate hike may come "fairly soon" if data confirm the economy is continuing to grow and labor markets are still tightening, said Federal Reserve Governor Jerome Powell, a permanent voter on the Fed's rate-setting committee. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil touched $50/barrel like we had been anticipating but failed to hold this key psychological level. WTI and Brent lost 1.0% and 1.3% to $49.38/barrel and $49.44/b respectively. While a crude glut could grow in coming months if demand stalls, wildfires in Canada's oil sands, unrest in the Nigerian and Libyan energy sectors, and a near economic meltdown in OPEC member Venezuela have knocked out nearly 4 million barrels per day in immediate production. But some market watchers say oil's climb to above $50 for the first time in seven months could spur producers, particularly U.S. shale drillers, to revive scrapped operations that could again bloat supplies and trigger a selloff. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore has crossed the $50/tonne level, falling 1.8% to $49.48. Overproduction in iron ore is not likely to go away; oil is much more balanced," Ole Hansen, head of commodity strategy at Saxo Bank, said by e-mail. "Oil will eventually move higher. In iron ore, most of the new supply coming online have production costs well below current levels, which leaves a strong incentive to continue producing. Port inventories in China increased 1.6% to 100.45 million tons last week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology Co. They're up 7.9% this year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Base metals were generally up but copper lost ground. Zinc rose the most in two weeks and industrial metals rallied after oil climbed above $50/barrel for the first time this year, helping buoy investor sentiment on the global economy. Supply cuts begin to take effect for zinc and inventories of the metal fall to the lowest since 2009. Zinc ore supply will remain tight until volumes arrive in 2018, said Peng Shuqing, assistant general manager of Shenzhen Jiangtong Southern Co., said at a Shanghai conference on Thursday. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- Australi's Q1 CAPEX survey missed expectations. Non-mining investment intentions for 2016-17 were downgraded marginally.
- BHP Billiton (BHP): May be among bidders into second round for Anglo American assets in Australia: Reuters; ‘Real spark’ for copper demand is renewable energy: BHP
- Charter Hall Group (CHC): Said to be working on bid for smaller rival: Australian; See S&P ASX 200 REIT Index members.
- Macquarie (MQG): Thames Water stake seen raising £1bn-1.5bn: FT.
- National Australia Bank (NAB): Sees farmers seeking loans to weather crisis.
- South32 (S32): Colombia nickel union says members will vote for strike.
Macquarie Bank created a double bottom in April and has not looked back. MQG on a Fibonacci extension took check at the 76.40%, retraced and held at the key $70 level which coincided with the 38.20% level.
MQG has now launched off these levels before reaching its 100% extension. A double bottom is a powerful signal with targets of 100%, 200% and 300%. Should MQG break $73.60 it will have $79.81 in its sights.
Macquarie Bank trend
Support in the AUDUSD was off the orange trendline again (see chart below) which was quickly tested following the capex print which came in at a shocking -5.2% vs est. -3.2% before experiencing a decent rebound to go onto trade as high as 0.7242 (just below the 200 day moving average) over the trading day.
It was also an encouraging session for Aussie dollar bulls to see a settlement above the 61.8% Fibonacci retracement level (Jan 2016 low to the April 2016 top). Resistance for the day would come in at the 200 day moving average at 0.7251 and a break of this could open up a test of the 0.73 handle.
The EURUSD is likely to trade in the range between 1.1218 and 1.1125 in the near term but we focus on the US preliminary GDP that is released tonight at 2230 AEST (1230 GMT) as well as Janet Yellen’s speech on Saturday morning at 0315 (tonight at 1715 GMT). This GDP figures have been declining in the last three quarters, therefore any improvements may initiate the recovery of the US dollars which have been falling recently.
Continued strength in the AUS200.i above 5,400 opens up a new zone with resistance to potentially come in at around 5430~5450 as indicated on the chart below
Overnight price actions of the crude oil seem to prove the significance of the resistance level 50, although it would be early to confirm the beginning of the reversal yet. Unless we see further declines in the crude oil, the positive sentiments are expected to remain in the equity markets. The current resistance level 2,094.75 coincides with the 61.8% extension of the range from the recent channel and the 100% extension lies near the April high at 2,111.
Resilient S&P500 (US500.I)
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Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoStratsAPAC